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Details set on yuan trade settlement

CHINA'S central bank yesterday issued long-awaited regulations that set the stage for using the yuan to settle cross-border trade, a key step in the country's efforts to promote the yuan as a future global currency.

There is no word, however, on when the previously announced trial program will begin.

When it does go into effect, the pilot will allow the yuan to be used to settle trade deals between companies on the Chinese mainland and those in Hong Kong and Macau and member countries of the Association of Southeast Asian Nations.

"Companies in China and neighboring countries are facing relatively huge foreign exchange risks in trades, as the major currencies such as the US dollar and the euro have fluctuated widely in the financial crisis," the central bank said yesterday, sketching out the background of the new regulations.

"Meanwhile, we are hearing more calls to settle in yuan as a result of the Chinese mainland's stronger links with the neighboring countries and the Hong Kong and Macau special administrative regions."

The State Council late last year said it planned a pilot program to trim reliance on the US dollar and to help stimulate the economy. In April, it named Shanghai and four Guangdong Province cities - Guangzhou, Dongguan, Shenzhen and Zhuhai - as the mainland sites that will participate in the trial.

"The regulations put meat on the bones of the central government's wider ambition for the renminbi to be used to invoice and settle trade around the region," Stephen Green, Standard Chartered Bank's head of research, said yesterday.

Using the yuan for overseas deals is expected to help stabilize trade, trim exporters' currency exposure and build the yuan's position in the international monetary system, which centers on the US dollar.

China earlier expressed worry over the safety of its mounting US assets. Premier Wen Jiabao said in March that China was concerned about the outlook for the US Treasuries the country holds and sought assurances on the safety of its investment.

China has also signed currency swap deals to move toward an exchange regime that is less dollar-centered.

Key Elements Of Pilot-Plan Rules

Under the new rules, the cross-border yuan settlement network will interface with the international payments system and China's Customs and tax information technology systems.

The rules also state that firms can apply for participation by providing documents to banks that confirm the authenticity of their trade deals.

The central bank, together with finance, commerce, Customs, tax and banking authorities, will choose the mainland companies that will be allowed to take part in the trial. Over 140 mainland companies have been picked so far. The rules also say that companies settling cross-border trade in yuan can enjoy tax rebates.


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